It's a combination of extreme temperature change, and aggitation. It needs the friction to beat the air out and get the wool to rub and lock together, and the hot and cold to get the little hooks on the fibers to open up and grab on to each other. That's what I've heard anyway.
I usually fill a sink with cold water, and then fill my washing machine (top loader) with hot - if your hotwater-heater isn't hot enough you can boil a pot or two and add that, I usually do this because our well water is SUPER cold and the hotwater-heater serving the laundry room is really tiny. Then I stick the felted item(s) in a pillowcase (a zipped one is the easiest to deal with) run it through the aggitation part of our "cotton sturdy" cycle (our heaviest cycle) with a few pairs of heavy work jeans, and stop the cycle before it drains for the rinse, then I take it out, and dunk it in the sink of cold water (some people use ice water) squish it around in that a little with my hands, then wring it out and return it to the washing machine, and turn back the dial to the beginning of the cycle, repeating the process until it's felted to my satisfaction :mrgreen: